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What Is a HUD Home? A Bargain With One Huge Catch

August 8, 2019

what is a hud home?

fizkes/iStock; hudhomestore.com

If you’re hoping to score a deal while house hunting (and who isn’t?), one bargain-basement option well worth exploring is a HUD home. So what is that exactly? Simply put, a HUD home is a property owned by the U.S. Department of Housing and Urban Development, but there’s some backstory here, so allow us to explain.

Long before a home becomes the property of HUD, it typically was owned by a regular homeowner who’d made this purchase with an FHA loan. Federal Housing Administration loans are easier to qualify for than a conventional loan because the FHA requires a low down payment (as little as 3.5%). However, if the owner ends up unable to pay his monthly mortgage, he ends up in foreclosure on the FHA loan, which means the home goes to HUD, which then must figure out how to unload this real estate and make back its money.

That’s where you come in! The process of buying a foreclosed HUD home varies from a conventional sale in a couple of ways, so here’s what you’ll want to know before you venture down the HUD real estate path.

Benefits of a HUD home

HUD doesn’t want to own these foreclosed homes any longer than it needs to, so these homes are priced to move, often below market value. Plus, the government agency offers special incentives to buyers in certain markets to sweeten the deal on a HUD-owned home.

For example, the HUD “Good Neighbor” program offers HUD homes in revitalizing areas at a 50% discount to community workers (e.g., teachers, police officers, firefighters, and EMS personnel) who plan to live in the property for at least 36 months.

Other HUD perks: low down-payment requirements or sales allowances you can use to pay closing costs or make repairs on the HUD home—not to mention, FHA financing options. So be sure to inquire with your real estate agent about the unique home-buying possibilities; the HUD route could be an even better bargain than how it first seems.

Another bonus for home buyers is that HUD gives preference to owner-occupants who intend to live in the home for at least one year, so odds are good you’ll beat out investors to boot. Another HUD win!

How to buy a HUD home

HUD homes aren’t listed on conventional real estate websites, and can instead be found at hudhomestore.com, where you can shop for HUD properties by state or ZIP code. You never know what you might find in a HUD search, in what location, and at what price. HUD listings typically contain photos, an asking price, and—here’s where things get different—a deadline by which you should submit your offer.

HUD homes are sold through an auction process: Once the HUD listing period deadline is past and bids are in, HUD reviews its options. If none of the bids is deemed acceptable (usually because it’s too low), HUD extends the offer period and/or lowers the asking pricing until a match is made.

All offers are considered, but in almost every case, the highest acceptable bid wins, says Mark Abdel, a real estate professional with Re/Max Advantage Plus in Minneapolis–St. Paul.

Which begs the question: How much should a hopeful buyer offer on a HUD listing? Well, that all depends on how hot the local market is and the condition of the home (more on that next).

Risks of HUD homes

HUD homes are sold as is—meaning what you see is what you get. If the leaky roof or electrical needs repairs, it’s all on you, the prepared home buyer, to cover the costs. And if you’re aiming to be an owner-occupant, you’ll likely want to square away any renovations quickly. That’s why it’s critical to get a home inspection before you put your bid in.

“A quality home inspection will alert you to what types of repairs or improvements need to be made, which you should factor into your bid accordingly,” advises Abdel.

That’s not to say that HUD homes always sit in disrepair and fall into the fixer-upper category. Each one, once HUD takes it over, is assigned a field service manager, who keeps a watchful eye on the home to make sure it’s secure and provides maintenance while the home is unoccupied.

The HUD field service manager may even oversee cosmetic enhancements or repairs, depending on the home’s condition, before the bidding process begins. Some HUD homes are even move-in ready, so never presume you’ll end up with a clunker; you could easily be a lucky HUD buyer!

Where to get HUD home loans

All financing options are available for HUD homes, including FHAVA, and conventional financing. If you’re buying a HUD home that needs repairs, check out a FHA 203k loan, which can allow you to include the renovation costs in the loan.

Your real estate agent can help you determine what programs—FHA, VA, and additional assistance options—you might be eligible for; and your lender may even offer some creative suggestions.

Also: In order to represent you in your bid for a HUD home, your real estate agent must be HUD-approved. Many are, so ask your Realtor® or else you can specifically search for HUD-registered agents at hudhomestore.com.

Michele Lerner contributed to this article.

The post What Is a HUD Home? A Bargain With One Huge Catch appeared first on Real Estate News & Insights | realtor.com®.

5 Things Every First-Time Home Buyer Needs to Know

February 13, 2019

first-time home buyer

iStock

Here’s what every first-time home buyer needs to know to dive into house hunting with confidence—and with as few curveballs as possible. Whether it’s getting a mortgage, choosing a real estate agent, shopping for a home, or making a down payment, we lay out the must-knows of buying for the first time below.

1. How much home you can afford as a first-time home buyer

Homes cost a bundle, so odds are you’ll need a home loan, aka mortgage, to foot the bill, along with a hefty down payment. Still, the question remains: What price home can you really afford? That depends on your income and other variables, so punch your info into realtor.com®’s home affordability calculator to get a ballpark figure of the type of loan you can manage.

In general, experts recommend that your house payment (which will include your mortgage, maintenance, taxes) should not exceed 28% of your gross monthly income. So, for example, if your monthly (before-tax) income is $6,000, multiply that by 0.28 and you’ll see that you shouldn’t pay more than $1,680 a month on your home mortgage.

But online mortgage calculators give just a ballpark figure. For a more accurate assessment, head to a lender for mortgage pre-approval. This means the bank will assess your credit history, credit score, and other factors, then tell you whether you qualify for a loan, and how much you qualify for. Mortgage pre-approval also puts home sellers at ease, since they know you have the cash for a loan to back up your offer.

You can also decide if you’re going to apply for a loan through the Federal Housing Administration (FHA).

“An FHA loan is a great option for a lot of home buyers, particularly if they’re buying their first home,” says Todd Sheinin, mortgage lender and chief operating officer at New America Financial in Gaithersburg, MD.

An FHA loan will have looser qualification requirements than a traditional mortgage, but there are still certain prerequisites borrowers must meet like getting private mortgage insurance and having a minimum credit score of 500.

2. Pick the right real estate agent

You buy most things yourself—at most, sifting through a few online reviews before hitting the Buy button and making a payment. But a home? It’s not quite so easy. Buying a home requires transfer of a deed, title search, and plenty of other paperwork. Plus there’s the home itself—it may look great to you, but what if there’s a termite problem inside those walls or a nuclear waste plant being built down the block?

There’s also a whole lot of money involved. (You know, a down payment, loan, etc.)

All of which is to say, before you make a massive payment, you will want to have a trusted real estate agent by your side to explain the ins and outs of the process. Make sure to find an agent familiar with the area where you’re planning on purchasing; to her credit, the agent will have a better idea of proper expectations and realistic prices, says Mark Moffatt, an agent with McEnearney Associates in McLean, VA.

“Finding a Realtor is not hard, but finding one that is best suited for you and your purchase is a challenge,” he adds.

You can search on realtor.com/realestateagents to find agents in your area as well as information such as the number of homes sold, client reviews, and more. Make sure to interview at least a couple of agents, because once you commit, you will sign a contract barring you from working with other buyer’s agents—this ensures the agent’s hard work for you pays off.

3. Know there is no such thing as a perfect home

It’s your first home—we understand if you’ve dreamed about the ideal house and don’t want to settle for anything less. We’ve been there! But understand that real estate is about compromise. As a general rule, most buyers prioritize three main things: price, size, and location. But realistically, you can expect to achieve only two of those three things. So you may get a great deal on a huge house, but it might not be in the best neighborhood. Or you may find a nice-size house in a great neighborhood, but your down payment is a bit higher than you were hoping for. Or else you may find a home in the right neighborhood at the right price, but it’s a tiny bit, um, cozy.

Such trade-offs are par for the course. Finding a home is a lot like dating: “Perfect” can be the enemy of “good,” or even “great.” So find something you can live with, grow into, and renovate to your taste.

4. Do your homework

Once you find a home you love and make an offer that’s accepted, you may be eager to move in. But don’t be hasty. Don’t purchase a home or make any payments without doing your due diligence, and add some contingencies to your contract—which basically means you have the right to back out of the deal if something goes horribly wrong.

The most common contract contingency is the home inspection, which allows you to request a resolution for issues (e.g., a weak foundation or leaky roof) found by a professional.

Another important first-time home buyer addition: a financing contingency, which gives you the right to back out if the bank doesn’t approve your loan. If they believe you’ll have trouble making a payment, a mortgage lender will not approve your loan. A pre-approval makes the possibility of having your loan application rejected much less likely, but a pre-approval is also not a guarantee that it’ll go through.

You also might want to consider an appraisal contingency, which lets you bail if the entity who is giving you a loan values the home at less than what you offered. This will mean you will have to come up with money from your own pocket to make up the difference—a tough gamble if cash is already tight.

5. Know your tax credit options

The first-time home buyer tax credit may be no more, but there are a number of tax breaks new homeowners may not be aware of. The biggie: Mortgage interest deduction is a boon for brand-new mortgages, which are typically interest-heavy. If you purchased discount points for your mortgage, essentially pre-paying your interest, these are also deductible. Some states and municipalities may offer mortgage credit certification, which allows first-time home buyers to claim a tax credit for some of the mortgage interest paid. Check with your Realtor and local government to see if this credit applies to you.

The post 5 Things Every First-Time Home Buyer Needs to Know appeared first on Real Estate News & Insights | realtor.com®.